After more than 40 years of teaching and consulting, analyzing, and managing companies in the supply chain and logistics space, Yossi Sheffi was starting his sixth book in early 2020—on the history of supply chain innovation—when Covid-19 struck. He quickly decided that the innovation book would have to wait while he covered the unfolding crisis and examined the lessons it taught for the future of supply chains.
In a recent Resilinc webinar Sheffi summarized key findings from the resulting book, The New (Ab)Normal: Reshaping Business and Supply Chain Strategy beyond Covid-19.
According to Sheffi, the pandemic accelerated trends that were well under way before Covid-19—especially the shift to ecommerce and the growth of automation and robotics. In the second quarter, Wal-Mart’s e-commerce revenue grew by 97%, Target’s by 195% and Lowes’ by 135%. “Shopify doubled its business as small- and medium-sized retailers used [the platform] to get into the e-commerce game,” said Sheffi. “Even Facebook started getting into e-commerce.”
Airbnb for warehousing
This trend will continue, and to compete with Amazon, more companies will turn to tech platforms like Flexe—“the Airbnb for warehousing,” according to Sheffi—that match the supply of distribution center capacity with demand. “Flexe has signed agreements with more than 1,000 warehouse distribution centers,” Sheffi said. Such arrangements provide vital flexibility for growing e-commerce firms. “A firm can start with space in one warehouse in the middle of the country – near Cleveland for example – it can put some its SKUs there and advertise locally.”
The pandemic crisis provided a perfect opportunity for customers to learn “where they have strong relationships with suppliers that will stand the test of time,” said Sheffi. “Many good companies are now going through a strategic review of their suppliers, [seeking to assess] who has the necessary capacity, who cut corners on quality, who’s in financial trouble.”
On the other side of the same coin, he urged companies, many of whom are trying to conserve cash, to “be careful not to lengthen terms of payment so much that you endanger suppliers.”
Challenging conventional wisdom
Sheffi expressed skepticism about major changes to supply chains that have been projected to arise from the pandemic, including a shift away from just-in-time (JIT) manufacturing and inventory management and a wholesale retreat from China sourcing.
JIT “was a huge improvement” over prior methodologies,” according to Sheffi. “While it does call for minimal inventory, it incorporates resiliency and flexibility by tying suppliers more closely with their customers and enabling faster response to demand changes. It has also led to higher quality and less waste.”
Sheffi does advocate for larger inventories of PPE (of which there were consequential shortages in spring 2020) but believes this should be accomplished through a strategic stockpile program akin to the Strategic Petroleum Reserve. He also suggests stress testing for healthcare providers to ensure “they can withstand a [PPE supply interruption] for a week or a month.”
Regarding China, Sheffi’s research shows no major shift in trade away from the world’s largest manufacturing nation. He pointed out that China has already seen a flight of labor-intensive industries such as garment manufacturing, while the country’s position in capital-intensive industries has grown ever stronger—and foreign companies are highly reliant on these capabilities. “In automotive, high-tech, biomedical and other industries, companies have spent billions to develop whole supply chain ecosystems in China,” he said. “It’s not going to be easy to find that somewhere else.”
Nonetheless, he foresees U.S. geopolitical conflicts with China continuing under a Biden Administration. “One thing that Democrats and Republicans agree about is they [consider] China a strategic competitor, if not an enemy.” Security concerns around Hong Kong, the South China Sea and other issues will continue to be policy priorities, and President-elect Biden will likely be more successful than Trump at securing cooperation from allies. “It’s one thing if the U.S. is [confronting China] alone, but if Germany, France, the EU, Australia and Japan join us, that will get China’s attention.”
Accelerating Covid flare-ups call for better mapping
As the northern hemisphere settled into winter, Covid-19 outbreaks accelerated—leading to rapidly shifting government policies. In this chaotic environment, Sheffi says that supply chain professionals should find greater support from corporate leadership for investing in multi-tier supply chain mapping. “I expect it will be easier [to justify now] for the simple reasons that one can see how important it is.”
“We’re still in a situation of opening and closing, opening and closing,” said Sheffi. “It’s more important than ever to know exactly who your suppliers are, what they’re making, how those parts are tied to bills of materials, what’s the value at risk. Companies that have invested in supply chain mapping are going to do better. Companies who did not are going to realize how important it is.”